Power Integrations v. Fairchild Semiconductor was originally decided on July 3, 2018, and modified on September 20, 2018 on appeal from the Northern District of California. In the modified opinion, language requiring that the patentee, to apply to entire market value rule, present evidence that the other features “are not relevant to consumer choice” and “did not influence purchasing decisions” were revised to require only that the patentee show that the other features “do not cause consumers to purchase the product.”
The asserted patents related to switching regulators involved in power supply controller chips. A jury found infringement and awarded $139.8 million in reasonable royalties to plaintiff Power Integration based on the entire market value rule. The district court then denied defendant Fairchild’s motion for JMOL, or in the alternative for a new trial, arguing that the damages award was not supported by the evidence and that the use of the entire market value rule was improper. Fairchild appealed.
The Federal Circuit affirmed the judgment of infringement, vacated the damages award, and remanded.
The evidence presented by Power Integration “was insufficient as a matter of law to invoke the entire market value rule.” Generally, “where multi-component products are accused of infringement, the royalty base should not be larger than the smallest salable unit embodying the patented invention.” Even when a damages theory relies on the smallest salable unit, “the patentee must estimate what portion of that smallest salable unit is attributable to the patented technology when the smallest salable unit itself contains several non-infringing features.” The entire market value rule is “a demanding alternative to [the] general rule of apportionment.” “The entire market value rule allows for the recovery of damages based on the value of an entire apparatus containing several features, when the feature patented constitutes the basis for consumer demand,” i.e. when “the patented technology drove demand for the entire product.”
The Federal Circuit vacated the reasonable royalty. Power Integrations’ royalty rate was premised on the patented “frequency reduction feature as driving consumer demand for Fairchild’s controller chips.” To support this contention, Power Integration provided evidence that the “patented frequency reduction feature was essential to many customers, as it allowed the products to meet the federal government’s Energy Star program. In addition, Power Integrations provided evidence that some customers asked for the [patented] feature, that products with the [patented] feature outsold other products, and that technical marketing materials promoted the [patented] feature.”
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The entire market value rule is appropriate “only when the patented feature is the sole driver of customer demand or substantially creates the value of the component parts.” “The burden of proof in this respect is on the patent holder.” Where the accused infringer presents evidence that its accused product has other valuable features beyond the patented feature, “the patent holder must establish that these features do not cause consumers to purchase the product.” It is “not enough to merely show that the patented feature is viewed as essential, that a product would not be commercially viable without the patented feature, or that consumers would not purchase the product without the patented feature.” Both parties agreed that the accused products contained other valuable features, some of which were specifically mentioned in Fairchild’s technical marketing documents. “Power Integrations presented no evidence about the effect of these features on consumer demand or the extent to which those features were responsible for the products’ value.” The Federal Circuit thus vacated the damages award and remanded.
Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 904 F.3d 965 (Fed. Cir. 2018)